The issue at hand: track record

To err is human; to commit the same mistake twice is stupid.

-- A proverb retold

IT HAS become an all-too-familiar storyline: the Sensex touches a new peak, everyone cheers and pops the bubbly, the market is buoyant, new issues are announced, they get oversubscribed. And then the market collapses, deflated like a punctured balloon, and all investors are despondent.

Do we never learn?

That Moody's or Standard and Poors have upped the rating of India, the Sensex has crossed the psychological barrier of three (four or, in the present case, five) thousand, the economic survey or the credit review estimates the growth-rate at a robust 6 to 7 per cent, the Foreign Institutional Investor (FII) investment has crossed U.S. $4,000 millions are all reasons enough for the promoters to get cracking. They will waste no time in offering us shares in their companies.

But are these reasons enough for us to put our hard-earned money in their stocks? The problem is that hope often gets the better of rational thinking. What is described as `sentiment' in the markets often causes swings. What should out strategy be in such a euphoric state? First and foremost, remember that it is your "blood, sweat and tears" that you are parting with. Don't forget the adage, "A fool and his money are soon parted". The realisation is enough to make you cautious and wary of the Initial Public Offer (IPO) wannabes who will not miss a chance to make a fast buck. Remember the thousands who were led up the garden path in the early 90's and were left with scrips of companies that soon sank without a trace.

Past experience has shown that dividend records, fundamentals and technical analysis (more of these in the coming instalments) are important, but those who forgot that safety perception should take precedence have come to grief.

Go in for the track record of the promoters. Risking the charge of being branded conservative, let it be said: the Government companies are often a safe bet. Look at Maruti that mobilised nearly Rs. 1,000 crore. If you think the auto giant is an exception, consider UCO Bank, Indian Overseas Bank and Vijaya Bank IPOs, which together accounted for another Rs. 800 crores. These four companies, the common thread running through them being the presence of the Government as a key shareholder, generated over 95 per cent of the total amount mobilised from the market.

Notwithstanding the dubious reputation of their sloth and inefficiency, Public Sector Units (PSUs) have not let the investor down. The pricing was right and the market price has always been above the issue price. Not for nothing that these shares are the flavour of the season.

Several PSUs in the oil, energy and banking sector are lining up with mega issues. Given the appetite for PSU shares, these should be lapped up by the investing public with gusto. The market would then be in a tizzy and this is when relatively unknown promoters will dip into your pocket. And this is exactly when you have to be careful. Don't say you were not warned!


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